I got my degree, I got a job…now what?

Student Loan Payoff Progress December 17, 2011

If you follow me on twitter, you know I’ve been thinking a lot about paying off my student loans. I already have my loans set to auto-pay every month, and, while that was slowly whittling away at the total amount, I felt like it was going to take FOREVER to pay it all off. One of my loans had recently been sold off to Sallie Mae, and when I logged into their site, it showed the daily accrued interest. Seeing that every day I left these debts unpaid meant more I had to pay in the long run made this really hit home. I knew in my head that I was paying interest, but seeing it accrue gave me the kick in the pants I needed. At one point I was going to pay all of one loan off, then I went to half of that one loan, then I was afraid to do anything.

My final decision: Pay $4,000 towards a loan currently at 3.5% interest.

I still have $4,584.34 to pay off on that 3.5% interest loan, and $30,330.61 total on a group of loans at 2.75%.

I headed over to the What’s The Cost’s snowball calculator to see how long it would take me to pay off these loans. If I keep paying the minimum that is auto-paid every month, I’ll finally be free of these student loans by March 2018 (assuming that when I finish paying off the 3.5% loan, I’d use that money to pay down the remainder of the 2.75% loans). That is WAY too long. I don’t want to wait that long. That’s a lot of extra interest accruing. And with interest rates on savings accounts now below 1% for pretty much every account I know of, it would make more sense to pay down the loans more quickly. So, I went back in to the snowball calculator, and tried to figure out how much I’d have to pay if I wanted to be rid of the debt by the end of 2012 (a wild goal I considered making after I felt so good paying the $4k). Turns out I’d have to pay around $3k PER MONTH to get rid of all my debt within the year.

Here’s the thing: I have a lot of money in savings. Possibly too much, considering other things I could have done, like pay down my loans more quickly, or put more in my 401(k). I’m basically like the people on Hoarders, but with money. I’ve got a solid emergency fund, plus I’m saving up for a down payment and maybe eventually a wedding. But those are still a long way ahead of me.

So the question is: should I use my savings to pay off my loans? In the long run, networth-wise, I should just get rid of my debt. Granted, I was more keen on getting rid of it back when I graduated, with it being at 8.5% on $70k or so. Most people would be willing to do almost anything for a 3.5% interest rate on a loan. Part of me really just wants to get rid of that debt. And if I draw from my savings, I think I can do it. But I should keep an emergency fund. You know, for emergencies.

I think my best bet is to just set an amount that I will pay every month beyond the minimum. I’m thinking $500-$1000 extra per month. I think it can be done.

For now, I’m really glad that I made a big dent in my loans. And that meant I met my first goal that I set on Payoff.com (and earned the First Goal Complete badge!). And I earned 4000 credits on SaveUp. So, besides lowering my debts, I got a few virtual rewards 🙂

So, would you pull money out of savings to pay low-interest debts? Is there an amount or an interest rate that would make you change your mind?

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4 Responses to “Student Loan Payoff Progress”

My personal philosophy is that life is easier and more fun to live when you are debt-free… As long as that wedding isn’t around the corner in the sense that you’d end up borrowing at a much higher interest rate before you can re-save the money, I would use that and/or the down payment fund to pay off the CC debt and then use everything you would have been putting towards the CC payments to refund those savings accounts. If you were making good interest rates on the savings money, it wouldn’t be worth paying off such low-interest rate loans, but because (I’m assuming) you’re making maybe 1% on the savings accounts, I would use them to save money in the long term. But I am someone who thrives on living debt-free. 🙂

I agree, I aspire to be debt-free! Luckily I don’t have any credit card debt (I pay off the balance every month). I’m pretty sure weddings/houses are far enough away that I wont have to borrow in the future due to using savings to pay off the loans. I am tempted to pay everything off at once, but having a lot less money on hand for emergencies does scare me.

I’m the same way you are. I really love having an emergency fund because no matter how much I plan or how well things seem to be going, something always goes wrong. It’s just piece of mind to have money tucked away and act like it doesn’t exist unless you need it. You do have considerably low interest rates, but I know how you feel in wanting to pay them off. Personally I would keep a nice safe amount in savings so that I felt comfortable in case of an emergency, then I would pay as much as I could on the student loans while possible keeping a third and smallest amount set aside for wedding, etc. That way you’re covered is something goes wrong, you put yourself in a very strong position to eliminate all or most of your debt, and you don’t feel completely broke when it comes time to plan the other things. Then I’d make the biggest payments possible on those student loans that your budget will allow and try and knock em’ out. Once that’s out of the way you still have your emergency fund and can really start saving for the wedding.